A survey by
the Ontario Securities Commission staff has found only 20% of National
Instrument 43-101 reports filed by mining and exploration companies with the
OSC are actually in compliance, while 40% are unacceptable. Designed and
implemented to protect mining investors, NI 43-101 reports govern all
disclosures of any mining-related scientific or technical information—especially
mineral resources and reserves—and requires mining and exploration companies to
file a technical reported prepared or approved by a “qualified person.” To be
considered a qualified person under NI 43-101, mining engineers or
geoscientists must have at least five years of experiences in mineral
exploration, mine development or operation or mineral project assessment; and
be a member in good standing of a professional engineering or geoscience
association.

Commission
staff said there were 460 technical reports by 238 Ontario mining issuers filed
in SEDAR between June 30, 2011, and June 29, 2012. The scope of the OSC review
was limited to a sample of 50 technical reports chosen according to certain
characteristics including the main exchange listing of the issuer, the location
of the mineral property, type of mineral deposit and the stage of development
of the property. The sample included 27 technical reports listed on the TSX and
16 listed on the TSX-V. Half of the issuers had a market cap of over $25
million with 25% of these having a market cap of greater than $100 million. The
majority of the issuers (59%) were at the mineral resource stage. Most of the
properties were located in North America (44%) while the largest percentages of
the others were located in South Africa (22%) and Africa (20%). The three
primary commodities discussed in the NI 43-101 reports were gold (46%0, copper
(12%) or iron ore (10%).

Approximately
40% of the Technical Reports had at least one major non-compliance issue, which
the OSC considered “unacceptable”. “We are particularly concerned with the
major non-compliance issues noted in the Technical Reports reviewed as these
deficiencies may have a significant impact on investors,” said the OSC.
“Technical Reports are a key disclosure document for mining issuers and
investors and their advisors may place significant reliance and make investment
decisions based on the disclosure in Technical Reports.”

The
“significant deficient” discovered by the OSC included mineral resource
estimates; environmental studies, permitting and social or community impact;
capital and operating costs; economic analysis; and interpretation and conclusions.

Other
sections of the Technical Report with frequent disclosure deficiencies include:
summary; history; and certificate of the qualified person. Mining and
exploration companies most frequently had deficiencies in their interpretation
and conclusions (38%), histories (28%) and mineral resource estimates (25%). Of
the 19 Technical Reports related to advanced properties, the OSC noted that 37%
were not in compliance with their economic analysis, while 32% did not
adequately disclose information related to environmental permits or the social
or community impacts of developing the mineral project.

The OSC
discovered many Technical Reports did not clearly disclose how reasonable
prospects for economic extraction were achieved, or what grade was used to
estimate the mineral resource. Capital and operating cost disclosure
requirements were also deficient in 26% of the Technical Reports on advanced properties.
“In some cases, the main components of the capital cost estimate were not
provided,” the commission observed. “In other cases, the Technical Report did
not provide justification for how the operating cost estimate was determined or
why certain costs were assumed.”

The OSC
review also found that 36% of the Technical Report reviewed “did not disclose
project specific risks and uncertainties such as the availability of water
rights, use of a novel mineral processing technology or the potential impact of
a civil war in the region.”

To read a
copy of OSC Staff Notice 43-705 Report on Staff’s Review of Technical Reports
by Ontario Mining Issuers, go to http://www.osc.gov.on.ca/documents/en/Securities-Category1/sn_20130627_43-705_rpt-tech-rpt-miningissuers.pdf